Why CFOs Shouldn’t Be CEOs?

Michael Porter, the master of strategic management, once said, “The essence of strategy is choosing what not to do.” Therefore, it is emphasized that the essence of implementation is actually not doing anything. Many principles of management follow this concept. For an innovative company, it is crucial not to let the CFO become the CEO. This is an ironclad rule. However, despite the difficulty of putting it into practice, Jack Ma once said, “We are not afraid of competitors or challenges, we are afraid of letting the CFO become the CEO.” Yet, he still appointed a CFO as CEO, and as a result, he paid a hefty price for that decision.

Why should an innovative company avoid having a CFO as CEO? This is a result of both external and internal factors. However, fundamentally, it is due to the CFO’s talents and their professional mindset.

We know that people differ from one another. Each person has their own talents. Some are tall, others are strong, and some are intelligent, with their brains being their advantage. But even among those who are naturally intelligent, there are differences. This is easy to understand, just like athletes who excel in different sports, some are good at long jump while others excel in long-distance running. Similarly, there are distinct individual differences in intellectual abilities.

Clearly, for someone to be promoted to the position of CFO in a large company, they usually need both talent and effort. Just like Yao Ming, height is a talent, but to become a world-class basketball player, he still had to undergo extensive training. Similarly, a finance professional, without talent, can only reach mid-level management positions through hard work and find it difficult to be promoted to CFO. In other words, a professional manager in the finance field who can ascend to the position of CFO in a large company implies that they have talent in dealing with numbers. It is difficult to reach this level through hard work alone. Moreover, these individuals not only possess innate talent in handling numbers but also often strengthen their professional mindset in the finance field through their career efforts. Unfortunately, the finance mindset and the innovation mindset are fundamentally opposed.

For instance, the talents and professional development of finance professionals lie not only in their sensitivity to numbers but also in their absolute inability to make mistakes. This is in direct contrast to the skills required for innovation. In the early stages of innovation, qualitative factors are more important than quantitative ones. Judging the correctness of the innovation direction is far more important than the financial numbers of the innovative products. Innovation tolerates mistakes. Essentially, innovation involves continuously trying various combinations, most of which are incorrect, but as long as one combination is correct, the innovation is successful. These ways of thinking are entirely contradictory to the mindset of finance professionals.

However, the characteristic of human thought patterns is that the more skilled an ability, the more it is utilized, while the less skilled it is, the less it is considered. This forms our mental model and creates shortcuts in our decision-making. Since these thoughts occur at the subconscious level, we are not aware of the reasoning process behind these shortcuts. Furthermore, due to our cognitive biases, we often firmly believe in them. In other words, the higher the level of expertise, the stronger the talent, and the more training one has received, the less likely they are to change their dominant thought patterns, and they may not even be aware that there might be problems in their thinking. CFOs, positioned at the top of the financial management pyramid, also possess a strong mental model. Changing their mental model, which is formed through the combination of talent and training, is often extremely challenging.

In the past, because technological advancements were relatively slow, many mature businesses in large enterprises tended to be stable. Even in many cases, CEOs did not need to make significant innovations at the product level throughout their tenure. Therefore, the issue of innovation was not particularly prominent. However, today is different. The external environment of enterprises has undergone profound changes. The rapidly accelerating technological progress has caused constant disruptions from the outside. Competition not only arises within the industry, but more and more “barbarians” are entering from outside and directly overturning the entire market. Therefore, there are few companies that no longer need innovation. On the contrary, innovation often plays a decisive role in the success or failure of a company. Innovation faces uncertainty, and the CEO is often the ultimate decision-maker for corporate innovation. This requires a CEO to have strong innovative thinking ability. However, as we already know, it is precisely because of the talents and professional training of CFOs that their mindset is fundamentally at odds with innovation. This fundamentally denies the possibility of CFOs becoming CEOs.

Innovation relies on teamwork, and both the CEO and CFO have their own responsibilities. If you can become Lionel Messi, there is no need to strive to become Michael Jordan. CFOs are already excellent enough. A talented finance professional should aspire to become a CFO and use their talents and professional training to help the company, rather than turning their advantage into a disadvantage. In fact, instead of reluctantly taking on a role that is not suitable for them, which may hinder the development of the company and even affect their own career progression, it is better to support a more suitable person to do the job of CEO and make the company better and stronger. An innovative CEO precisely needs a professional CFO as a partner. It is evident that this arrangement will benefit everyone.